A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines

Journal of Management (JOM) Volume 7, Issue 1, January – February 2020, pp. 28–41, Article ID: JOM_07_01_005 Available online at http://www.iaeme.com/jom/issues.asp?JType=JOM&VType=7&IType=1 Journal Impact Factor (2020): 6.1633 (Calculated by GISI) www.jifactor.com ISSN Print: 2347-3940 and ISSN Online: 2347-3959 DOI: 10.34218/JOM.7.1.2020.005 © IAEME Publication

A STUDY ON THE CAUSES OF FINANCIAL CRISIS IN THE INDIAN AVIATION INDUSTRY WITH SPECIAL REFERENCE TO – KINGFISHER AIRLINES

Prof. Baisakhi Debnath Assistant Professor, Jain Deemed-to-be University, India

Sushan A Shantharam Student, BBA, 5th Semester, Jain Deemed-to-be University, India

Anmisha Reddy Dwarampudi Student, BBA, 5th Semester, Jain Deemed-to-be University, India

Dasari Sri Vidya Student, BBA, 5th Semester, Jain Deemed-to-be University, India

ABSTRACT India is a country where Air Travel in the early 90’s was a luxury, wherein the masses couldn’t even think of air travel the fares as it was very expensive. Even the Indian Aviation Industry wasn’t up to that standard of other countries when Mr. Naresh Goyal entered the aviation industry with his new baby Jet airways on 1st April 1992 to change the portrait of the industry as he had good knowledge of the working of the industry. Goyal was the person who changed the image of Indian Aviation industry in the global map by creating new routes he also gave prominence to his pilots, technicians & airhostess by giving them good pay package. He made the air fares reasonable in comparison to its competitors. Jet Airways has been through a lot of ups and downs in the process. In addition to Jet Airways, there were many airlines which could not perform well In the Indian Aviation Industry. Tata Airlines (now known as Air India), Sahara Airlines (later known as Jetlite), Kingfisher Airlines are to name a few. The present paper is trying to look into the root causes of the financial crisis of these airlines. Keywords: Aviation Industry, Financial Crisis, Airlines Cite this Article: Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya, A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines, Journal of Management (JOM), 7 (1), 2020, pp. 28–41. http://www.iaeme.com/JOM/issues.asp?JType=JOM&VType=7&IType=1

http://www.iaeme.com/JOM/index.asp 28 [email protected] A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines 1. INTRODUCTION Joshi & Desai (2015) pointed out that the Airport Authority of India (AAI) manages in total 122 Airports in the country. It includes International Airports-11, domestic airports-94 and civil enclaves-28. 70% of the passenger traffic of which Delhi and Mumbai together account for 50% alone is handled by Top 5 airports in the country Passenger and cargo traffic has growth at an average of about 9% over the last 10 years. Over the years the skies of India have hosted numerous airlines however few have been able to sustain the rough weather. Jet Airways the latest among the lot hurled towards the crash faster than it was imagined. Jet had no cash and fuel which resulted in its winding up. The other sectors associated with the Aviation industry are making money with exception to the Airlines. Cab operators like Ola, Uber are doing well resulting into the government getting good money in form of taxes. In addition, the lease companies are charging hiked amount of rent on airport. The reasons for the non-performance of Airlines could attribute to certain reasons.

1.1. Debt The amount of debt the Aviation industry is surmountable. According to livemint (2014) the industry has a debt of 15.83 billion. Knigfisher Airlines alone has a debt of about $ 210 million roughly around INR 14,578 million and Jetairways has a debt of about INR 15,000 Crore, and Air India has a Debt of INR 58,351 Crores to mention a few. Some of the significant causes for the non-performance and failure of Airlines in India are Mis-management, stringent aviation rules, FDI (Foreign Direct Investment) rules and regulations, high aviation turbine fuel prices, rupee depreciation, excessive parking and landing charges, pilot crunch, aircraft rentals, and higher import duty on aviation turbine fuel. Australian aviation consultancy CAPA (Center for Asia Pacific Aviation) forecasts that Indian carriers will lose a collective $550 million to$700 million in the financial year 2020 as compared to an estimated $1.7 billion loss for the 2019 year ending in March). The existing infrastructure is unable to support the ambitious expansion plans of the various airlines and even the county owned Air India was kept for sale for a number of times but sadly it could not attract any buyers. Despite the number of travellers has gone up many fold over the years, still the airlines are not able to make profit. Experts often say that a countries development is based on the improvement of the aviation and the telecom industry. The image of India’s aviation and telecom industries has one thing in common - the amount of debts both the sectors are into. The primary reason why these two sectors are failing in India can be attributed to the multiple instances of regulations changing to favour particular companies namely Jio getting a free hand at launch and opening up FDI for Jet-Etihad deal are a few examples which conform to the fact. In addition, the government treats the two sectors as cash cows like the Spectrum sale of 2016 bringing in more than Rs 65,000 crore as revenue and aviation turbine fuel being highly taxed and the most expensive in Asia making these two sectors highly unstable in terms of growth. The government at present has opened the sale of the part of debt laden Air India to foreign airline. The government has moved about Rs. 30,000 crore of Air India’s debt to as a separate holding company leaving the airline with roughly another Rs. 30,000 crore of debt according to the sources

2. LITERATURE REVIEW 1. Kumudha & Bhunia (2016) in their study pointed out the paradigm shift of the in the mindset of the Indian travellers in choosing air travel as compared to other mode of travel with the change in aviation policies of the government along with the rise in air travel of India to

http://www.iaeme.com/JOM/index.asp 29 [email protected] Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya global standards. They analysed the expectations, satisfaction levels and perceptions of the customers and pointed out the need of improving customer relationship in retention of customers and improving customer loyalty. They pointed out the effectiveness of the customer relationship marketing activities practiced by the airline companies where the analysis showed that Kingfisher airline passengers were overjoyed and Jet airways passengers were satisfied. 2. Ravi (2016) in his paper spoke about the recurrence of corporate frauds and failure of corporate governance in India with reference to the failure of Kingfisher Airlines. He mentioned that about the corporate legal framework of India on paper which could be considered to be the level of US Surbanes-Oxley Act. It has been found that collectively the non-productive assets of Indian public banks have been estimated at $120 billion in 2016. This is not possible in developed countries and many developing countries and a host of factors like political nepotism, outright corruption facilitated many questionable practices of Indian Banking sector. It has been found that in KFA case also the blame game has begun between ruling party and opposition parties. Banks blame political influence and politicians blamed the banks for lack of due diligence. The issue is complicated by the fact that many CEO appointments in banks are normally political appointments. Market watch dogs kept changing the policies, for example SEBI’s change of policy of conversion of debt to equity by banks at premium resulted in lending banks paying 61% premium to KFA. 3. Srivastava (2016), in the research critically analysed the factors that lead to the down fall of the various airlines with major reference to kingfisher which pointed out the kingfisher lacked strategy for long terms by collaborating with Air Deccan, other reasons could be non- appointment of CEO for a longer period of time, multiple hopping destinations with non- profitable routes resulting in delays. In addition to that, in the financial front they were always at the back-foot with higher cost of training, high cost of maintenance, delayed salary to the employees, government dues and a hefty operating cost primarily on account of steep depreciation of Indian Rupee coupled with higher fuel costs which resulted in high accumulative losses. 4. Choudhuri, Dixit & Tiwari (2015) in their paper broadly discussed about the issues and challenges faced by aviation industry in India and pointed the various loan defaulters in aviation industry. The researchers have made a study on various airlines and their financial non- performance which includes Spice Jet: The company had a debt of 1738 crore. The reports attributed the failure of the company to depositing tax deducted in employee’s salary and that the employees were also not provided form16. The report also stated that a promoter Mr. Maran was planning to transfer 53.48 % stake in airlines. The company denied any such part of his stake. Sanjiv Kapoor, COO of the company wrote to the employees “Spice Jet is no Kingfisher” to contradict such news articles (Narasimhan, 2014). The company has dropped least six destinations to make its operational performance improve. Jet Airways: Mr. Naresh Goyal launched Jet Airways in 1993. The company borrowed $800 million to purchase new aircrafts. In 2007 Air Sahara was acquired for Rs1450 crore. The company started facing financial issues after the acquisition of Air Sahara. The airline began dismissing its employees, and 1900 employees were retrenched to optimize the operations. Mehra (2011) pointed out a broad lack of repercussions by the top management level associated with a poor coordination and communication between the employers and the employees and an extremely poor HR practices and management in the organisation. The company registered loses for the consecutive seventh year in FY 2014. It registered loss of Rs. 3,667 crore which amounted to seven times the loss as compared to the previous year at Rs. 485.5 crore. Kingfisher Airlines: This airline was grounded in October 2012 and the flying permit was cancelled in December 2012. The court has allowed banks to take holdings of properties as a

http://www.iaeme.com/JOM/index.asp 30 [email protected] A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines recovery of loans. SBI consortium bank took housing property of kingfisher worth Rs 100 crore. Times of India 2015 pointed out an outstanding loan of Rs 6800 crore to banks by kingfisher airlines. United Bank of India who had a loan of Rs. 350 crore from Vijay Mallya declared him as a wilful defaulter in 2014. 5. Sambrani (2014), India in his research spoke about how public private partnerships (PPP) turned out to be the most preferred mode for construction and operations of commercially viable projects wherein it is almost impossible for the government in the capacity of its own to bring all the elements of infrastructure together. The paper spoke about the construction of Greenfield Bangalore International Airport to understand PPP 6. Joshi and Desai (2012) has done a study on the mergers and acquisitions in Aviation Industry in India and the impact which it creates on operating performance and wealth of shareholders. Their study primarily focussed on operating performance of the companies before and after acquisition and the reasons the organisations go for such unstable modes of entry. They have pointed out that main objective behind such mergers and acquisitions were to ensure their source of supplies and that when one company is lower in their performance the other can help them out. Few mergers in Indian aviation industry are Kingfisher-Air Deccan and Jet airways- Air Sahara. Post the merger, these airlines faced huge losses and the causes can be imparted to overpayment, strategic issues, selecting the targets, personal motives of executives, integration issues. In addition it was pointed out that the profits of the company declined in the process and even the wealth of shareholders declined in the process resulting in no shareholders’ wealth post the mergers. 7. Hooy and Lee (2010) in their research “The determinants of systematic risk exposures of Airline industry in East Asia” have tried to understand the gap for risk exposures in East Asia airline industry and by making a panel regression in seven companies in different regions have tried to identify the gap. They have found out that the risk exposure is high during 2000 dot crisis and not in recent subprime crisis. 8. Distexhe and Perelman (1994) in their research tried to find out the technical efficiency and productive gains in airline industry. The result showed a large variance from one airline to the other and the variance is seen in the different time span. However, the study of the sample airlines showed an improvement in general in the technical efficiency. The results affirmed the improvement in efficiency of airlines with the increase in competitive environment. In addition, technological progress, which had been indicated by the positive shifts in production front, this advantage is confined to airlines operating worldwide. Furthermore, it was found only a handful airlines obtain productivity gains due to density of route networks and load factor changes. Thus, the growth in productivity is viewed as the privilege of airlines that succeed in these different sources of growth.

3. METHODOLOGY OF THE STUDY 3.1. Title of the Study A study on the causes of financial crisis in the Indian Aviation Industry with special reference to Kingfisher Airlines

3.2. Research Objective The objective of the study is to look into the causes of the financial crisis of the Indian Aviation Industry and its impact on the economy of the country as a whole

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3.3. Statement of the Problem What are the causes of financial crisis and bankruptcy of airlines operating in India? Methodology The methodology adopted for the data collection required for this research is the secondary data. Tools of data collection Secondary data • Government Data base • Journal Articles • Trade Journal • Periodical and Book • Newspaper and magazine articles The main tool used for collecting the data for this research was case studies .The researcher got quite a few of case studies relating to the Indian aviation industry from google scholar and emerald.com .. Sample Size The sample size of the research study is restricted to 5 companies Reference period The research was conducted for the approximately a month during the period of July 2019 to September 2019

4. DATA ANALYSIS & INTERPRETATION It has been found that the avaitaion industry in india is booming and has a good growth rate if we see the statistical data we can know that the growth rate in india is increseing year on year but yet many airlines in india arent running in profit and majority of them at one point of time ruled the market but know their existance is next to zero In the graph it can see that the passenger market in india has a growth rate of 12% year on year where as the intenational has growth rate of 6.5% clearly we can say that avaitation is good bussines to be in but yet many companies are failling to go ahead with the business succcessfully, the reasons for which are discussed in the figures and charts below

Growth

international cargo

growth international passengers

domestic passengers

0% 2% 4% 6% 8% 10% 12% 14%

Figure 1 Growth of Aviation Industry

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30 Indigo 25 Jet airways 20 spice jet 15 Air India 10

0 2014 2015 2016 2017 2018

Figure 2 Figure showing India’s biggest airlines and their market share From the table, it has been found that the highest market share of airline between the years 2014 – 2018 is consistently maintained by Indigo followed by Jet Airways

4.1. Shareholding Private promoters hold a 74% stake in Bangalore International Airport while the Government holds the remaining 26%. The Shareholding structure of BIAL is as follows: 1. Siemens Project Ventures, Germany: 40% 2. Unique–Zurich Airport, Switzerland: 17% 3. Larsen & Toubro, India: 17% 4. Airports Authority of India: 13% 5. KSIIDC, Government of Karnataka: 13%

Shareholding

Siemens Project Ventures, Germany Unique –Zurich Airport, Switzerland Larsen & Toubro, India

Airports Authority of India

KSIIDC, Government of Karnataka

Figure 3 Shareholding

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It can be seen from the above Pie Chart that private promoters such as Siemen project ventures, Larsen and turbo, unique- Zurich airport, holds 74% of stake and Government of India holds 26% of stake in Bangalore international airport. Siemen project venture, Germany hold maximum amount of stake i.e. 40% followed by which Unique-Zurich airport and Larsen & Toubro, It holds17% stake from Indian government and The Airport Authority of India holds 13% and KSIIDC, government of Karnataka holds 13% of stake.

Indigo

Air Asia ST debt/total debt LT debt /total debt Spice jet

Jet airways

0 20 40 60 80 100 120

Figure 4 Figure showing Financial Risk Proportion of 4 different airlines From the figure it can be said that Jet airways has the highest financial risk proportion. Its proportion of long term and short term debt is (1.32:1)

Table 1 Airline Management’s Perception based on Customer relationship management practices are: Mean scores of the CRM Air India Jet Airways Kingfisher strategies Customer Acquisition 3.45 3.91 3.73 Strategy Customer Satisfaction 3.50 4.21 3.79 Strategy Customer Retention Strategy 3.50 2.33 3.33 Customer Loyalty Strategy 4.00 5.00 3.00 From the table it can be seen that jet airways has the best acquisition strategy, customer satisfaction strategy, and customer loyalty strategy compared to Air India and Kingfisher, but Air India has highest customer retention strategy, when compared to Jet airways and Kingfisher.

Table 2 Name of the major players in the Aviation Industry and their market shares in the year 2008-2009 Name of the Players Market Share Kingfisher Airlines and Kingfisher Red (Previously Air Deccan) 28% Jet Airways and Jet Lite ( Previously Air Sahara) 25% Air India & Indian ( Previously Indian Airlines) 16% Indigo 14% Spice Jet 12% Go Air 3%

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From the table it is seen that point of time that KFA had the majority market share with 28% and then followed by Jet Airways and Jet Lite with 25% followed by Air India (16%) IndiGo (14%) Spice-jet (12%) with GoAir bottoming the list with 3% market share. However if we see the current scenario the top two airways aren’t operating in India and have ceased operating with a lot of controversies. In FY 2018-19 Indigo has the largest market share on domestic routes with 37.9% and Air India has Largest market shares on international routes. If it is seen that what went wrong with kingfisher airlines it started as it was a dream of Mr. Mallya, he wanted to redefine the economy class in India by providing one of a kind experiences to it passenger KFA had started offering first class and in-flight entertainment on domestic routes. There were around 122 airports in the country, which include 11 International Airports, 94 domestic airports and 28 civil enclaves. In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India. Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia there by making India to drive more investors in the airline industry. Some industry experts expect a growth rate of 25% year on year in India. Air India, Indian Airlines, Jet Airways and Kingfisher Airlines have reported large losses since 2006, due to high aviation turbine fuel prices, rising labour costs and shortage of skilled labor, rapid fleet expansion, and intense price competition

Airline operating expenses landing and Depriciation and General associated amortizaion administrative and airport charges 7% others 4% 12% Maintenance and overhaul 10%

Ticketin,sales promotion other 16% 7%

passenger Fuel and oil service 12% 11% station expense 11% Enrroute facility charges Flight crew 3% 7%

Figure 5 Airline Operating Expenses The Pie Chart shows the primary expenses which can be expected while starting an Airline. The chart shows majority of the expenses on Ticket And Sales Promotion (17%) followed by expenses are on Fuel and Oil (12%) which are the two primary expense for any airline. 11% of the expenses for Services provided to the passenger and 7% expense on depreciation. Hence it can be found out Airlines operating expenses are more than their income .These could be some of the reasons why majority of the airlines cease to operate.

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Table 3 Table showing the Financial Performance of KFA from 2004-15 – 2008-09 Kingfisher Airlines 2004-05 2005-06 2006-07 2007-08 2008-09 Operating Profit Margin 10.2% -1.3% -21.9% -51.5% -26.5% Gross Operating Margin -4% -24.6% -21% -47.8% -33.9% Net Profit Margin -6.4% -27.5% -23.6 % -13.1% -30.5% Return on Capital 15.4% -9.8% 7.5% -19.6% -24.4% Employed Return on Net Worth -143% -347.5% -287.4% -129.8% -809% Debt-Equity Ratio 20.8 4.6 6.3 6.4 4.7 EPS -63.0 -347.5 -31.0 -13.9 -118.5 P/E -1.9 -0.3 -4.6 -9.6 -0.4 The data reveals the status of KFA year wise in terms of its financial performance and health. The operating profit in the year 2004-05 was 10.2% which consistently reduced at the steady rates and became negative over the years and at the end of 2008-09 year it had a negative 26.5% whereas gross profit margin from the first was stood at negative 4% and went worst over the years with -33.9% at the year of 2008-09 . It can be seen that even Net profit and Return on capital employed and return on net worth and debt equity ratio and earnings per share were in negative from the beginning. Over the years, Mr. Mallya had made his presence in various companies like Berger paints, Best and Crompton, Mangalore Chemicals and Fertilizers and Asian Age to name a few. All these companies including KFA was owned by United Breweries Ltd, Apart from these, Mr.Mallya had also bought an IPL team and even had bought a Formula 1 team and was the one who hosted horse race in Bangalore, India while KFA was undergoing losses sources say that Mr.Mallya went spending flamboyantly. He bought a few antics of Tipu Sultan & Mahatma Gandhi for 1.8 million Dollars Thus, experts say the money which belonged to KFA or rather Vijay Mallya could have invested more judiciously on the development of KFA

Table 4 Bank Loans to Kingfisher Airlines from 2008-2010

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Below is the list of the bank which have given loan to KFA. State Bank of India has given 1600 crores in exchange it took the security of KFA Trademark and goodwill and IDBI Bank had given 800 crores and bank of India had given 30 crores and Punjab national bank had given 800 crores and united bank of India had given 430 crores and central bank had given 410 crores and uco bank had given 320 crores and corporation band given 310 crores and State bank of Mysore now state of India had given 150 crores as loan and various other banks also gave loans to KFA but in return had taken their trademark into security. Indian overseas bank was the only bank which had taken two helicopters as a security and Punjab and Sindh bank had taken the kingfisher house located in Mumbai as it security. Many experts felt that though KFA didn’t comply to get loan requirement but still managed to get the loan which was shock for many industry experts Mr. Mallya approached a number of banks between 2008 to 2010 and he got a huge amount of loan from many banks but the most shocking part was these bank took the brand value and seven trademarks as collateral which included Fly Kingfisher , Flying Models of Kingfisher, Fly the Good Times, Funliner and Kingfisher, which were valued by global consultancy firm Grant &Thronton at ₹ 3,008 crores ($601 million) . Many experts opined this incident as a result value of the firm today stands at 6 crores. KFA pledged its 1st brand to the bank at 4100 crores and a personal guarantee was given by Mr. Mallya for 248.07 crores and a corporate guarantee for 1601.13 crores. Below is shown the share prices of KFA. The table shows consistent downfall in the share prices of Kingfisher Airlines over the year between 2006- 2014

Table 5 Share prices of KFA from 2006-2014 Share Prices of KFA Sr Year High Low 1 2006 140.70 (28 Dec, 2006) 68.00 (19 July 2006) 2 2007 316.60 (18 Dec, 2007) 91.30 (05 April 2007) 3 2008 284.50 (01 Jan 2008) 29.10 (17 Dec, 2008) 4 2009 68.75 (02 Jun 2009) 49.60 (06 Nov 2009) 5 2010 86.80 (10 Nov 2010) 41.55 (20 May 2010) 6 2011 66.85 ( 03 Jan 2011) 19.65 (11 Nov 2011) 7 2012 29.15 (07 Feb 2012) 7.40 (10 Aug 2012) 8 2013 15.16 (02 Jan 2013) 3.88 (16 Dec 2013) 9 2014 3.46 (02 Jun 2014) 1.28 (27 Nov 2014) 10 1.34 (01 Dec 2014) No transactions after 1 Dec 2014 It can be found from the table that highest market share of KFA was on 28th December, 2006 the lowest being 27th November 2014 post which from 1st December it has ceased to operate

Table 6 List of Wilfull Defaulters by State Bank of India (Top-5) No Name of Wilful Defaulters Amount (in Crores) State 1 Kingfisher Airlines 1600 Karnataka 2. Agnite Education Ltd 315.45 Tamilnadu 3. Shreem Corporation Limited 283.08 Maharashtra 4. First Leasing Company of india Ltd 235.29 Tamilnadu 5. Teledata Mareen Solutions Pvt Ltd 166.85 Tamilnadu State Bank of India declared Vijay Mallya as a wilful defaulter for the bank and was the first person on the list of State Bank on India wilful defaulter in the year 2015 to State Bank of India alone. The airline has not flown since 2012 and has dues of over Rs.7000 to a consortium

http://www.iaeme.com/JOM/index.asp 37 [email protected] Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya of 17 banks. The banks are trying to recover the loans by selling the securities pledged by Kingfisher. SBI’s share has been estimated to the largest with around Rs. 1600 crores

Table 7 Bank loans to kingfisher airlines (2008-2010) Amount in Indian Amount in Collateral Serial No. Bank Year Rupees (₹ ) US $ Security Crores Trademarks and 1 State Bank of India 1,600 $212 million 2010 Goodwill 2 IDBI Bank 800 $106 million 2009 Trademarks 3 Punjab National Bank 800 $106 million 2010 Trademarks 4 Bank of India 650 $130 million 2010 Trademarks 5 Bank of Baroda 550 $110 million 2010 Trademarks 6 United bank of India 430 $86 million 2010 Trade marks Sales proceeds and lease rents 7 Central Bank 410 $82 million 2010 to be deposited an escrow account 8 UCO Bank 320 $64 million 2010 Trade marks 9 Corporation Bank 310 $62 million Trade marks 10 State Bank of Mysore 150 $30 million Trade marks 11 Indian Overseas Bank 140 $28 million 2008 Two Helicopters 12 Federal Bank 90 $18 million Trade marks Kingfisher 13 Punjab and Sindh Bank 60 $12 million 2010 House, Mumbai 14 Axis Bank 60 $12 million 2010 Trade marks Three other banks (Vijaya 15 603 $120 million 2010 Trade marks Bank and others) SBI is the bank that lended the highest amount to Kingfisher Airlines. It has lended 1600 crores in the year 2010, followed by IDBI and PNB who have lended 800 crores each. Trademarks and Goodwill are kept with bank as collateral security.

Table 8 Details from the books of kingfisher airlines Mar’11 Mar’10 Mar’9 Mar’8 Mar’7 Mar’6 Mar’5 Unsecured Loans 1872.55 3080.17 3043.04 342 200 3.5 125.06 Total Debt 7057.08 7922.6 5665.56 934.38 916.71 451.66 284.48 Total Liabilities 4105.89 4024.15 3540.22 1133.26 1301.41 657.79 298.14 Loans &Adv. 5380.19 4504.31 3640.42 832.49 149.77 232.03 47.28 CA ,Loans & Adv. 6260.73 5298.15 4189.37 1188.42 1063.68 558.83 174.88 Book Value(Rs) -70.46 -150.54 -83.88 13.9 28.4 22.83 43.96 As we see in the table, the debts of KFA have been only been increasing and the book value of the airlines is decreasing since 2005

5. LIMITATIONS OF STUDY Some of the Limitations faced by the researchers while doing research are as follows: • Lack of data regarding the financial crises of Indian Aviation industry • Lot of time taken while collecting secondary data • Less information was provided on published research

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• Not having a definite data • Concern that the focus is either still too broad or narrow • Time constrains • Conflicts within the group members • Was a very challenging task to collect the data • Not having the idea of the outlook of the research • Lack of confidence to take new research paper • Lack of Access Research

6. FUTURE SCOPE OF STUDY • Government policies affecting the functioning of aviation industry. • Rules and regulations set up by DGCA( Directorate general of civil aviation) • Air India’s financial crisis • Reason for closure of many airways in India • The problems of FDI in aviation industry • Kingfisher airlines acquiring Air Deccan • Spice Jet’s escape from the deaths • How low cost operators are dominating high cost operators.( For example Indigo dominating Jet Airways)

7. DISCUSSION & CONCLUSION From the above interpretation certain challenges faced by airline industry can pointed out If it is seen that what went wrong with kingfisher airlines it started as it was a dream of Mr. Mallya, he wanted to redefine the economy class in India by providing one of a kind experiences to it passenger KFA had started offering first class and in-flight entertainment on domestic routes. There were around 122 airports in the country, which include 11 International Airports, 94 domestic airports and 28 civil enclaves. In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India. Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia there by making India to drive more investors in the airline industry. Some industry experts expect a growth rate of 25% year on year in India. Air India, Indian Airlines, Jet Airways and Kingfisher Airlines have reported large losses since 2006, due to high aviation turbine fuel prices, rising labour costs and shortage of skilled labor, rapid fleet expansion, and intense price competition Challenges faced by Aviation Industry at the present moment • High airport charges: It contributes 20% for long distance and 30% for short distance air tickets (Gopinath, 2014) • High Maintenance Charges: The maintenance, repair and overhaul (MRO) charges are extremely high resulting in the airlines to travel Jordon, Singapore and Abu Dhabi for MRO. This increased MRO is passed on the passengers. • Low customer base: The customer base is not expanding rapidly to enhance the operational profits.

http://www.iaeme.com/JOM/index.asp 39 [email protected] Baisakhi Debnath, Sushan A Shantharam, Anmisha Reddy Dwarampudi and Dasari Sri Vidya

Poor regulation: The industry doesn’t provide level playing field for a new comers due to poor regulation. The monopoly of public sector companies has now been replaced by cartel formation of private companies. The procedures are complex and cumbersome. Poor Status of Airports: The government has not allowed competition in airports. Many international destinations have followed policy of more than one airport. London has five, New York has four, Hong Kong has four more international airports within 150 km radius. On the other hand, in India, Hyderabad and Bangalore airports have been closed. 75% of traffic comes from four major airports controlled by two firms (Gopinath, 2014). Financial stress may affect the safety of passengers, as airlines lower their maintenance budgets. The audit report of DDGCA has highlighted lack of spare parts as serious lacunae for maintenance of the aircrafts comprising the safety of the passengers. It has been that airlines are misusing category C defect, where an aircraft can fly with a defect for 10 days. Ranganathan commented that the airlines remove the defective part on tenth day and put it in some other flight. The defective part is rolled over again to some other aircraft and this cycle continues (live mint, 2014). High price of ATF as compared to prices at international level: ATF prices in India are highest globally and 60-70% higher than neighboring hub like Kuala Lumpur, Bangkok, Hong Kong and Singapore (Sinha, 2014). Value added Tax on ATF significantly affects the operating profits. Rupee depreciation affects the airline industry badly. Complex tax structure for ATF: The pricing of ATF does not reflect the international crude oil prices. Oil marketing companies fix the price by adding many other charges. The public sector oil companies seem to have made a cartel to fix the rates for airline companies, by abusing their monopoly. Thus in present paper the researchers have discussed about how the companies such as kingfisher, air India, jet airways, etc who once were one of the top shareholders of the market in airlines industry fall apart and had to cease their operation due to less profits which couldn’t meet up to their expenses and couldn’t repay the loans to the banks because of which the banks in the country had to face huge crisis. Kingfisher Airlines has been used as a special reference where it has been pointed out that the total amount borrowed by kingfisher airlines is 66670 crores of Indian rupees and highest amount borrowed by kingfisher was from SBI i.e. 1600 crores in Indian currency.

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http://www.iaeme.com/JOM/index.asp 40 [email protected] A Study on the Causes of Financial Crisis in the Indian Aviation Industry with Special Reference to – Kingfisher Airlines

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